BOJ’s New Easing Could Be Mixed Blessing for Rest of Asia

The Bank of Japan‘s more stimulatory stance could be a mixed blessing for Asia, potentially providing productive investment flows into the region but also providing fuel for future asset and debt bubbles.

Under immense pressure from the government, Japan’s central bank pledged Tuesday to keep an extremely loose policy stance for as long as necessary to meet a new 2% inflation target, which replaces its looser “goal” of a 1% rise in prices.

The BOJ also will increase its asset purchases by a net 10 trillion yen ($112 billion) in 2014, on top of the Y101 trillion in assets it’s expected to have purchased by the end of 2013.

Combined with massive quantitative easing programs by the U.S. Federal Reserve Board and the Bank of England, and set against a backdrop of historically low interest rates in developed countries, the BOJ decision highlights the magnitude of potential capital flows into emerging Asia.